Euro Advances as Irish, Spanish Auctions Ease Debt Concern

The euro rose against the dollar and the yen after investors bought the maximum amounts offered at Spanish and Irish debt sales, easing concern that Europe’s sovereign debt crisis will worsen.

Europe’s common currency advanced the most against the New Zealand dollar and British pound among its 16 most-actively traded peers. The dollar fell for a second day against the yen and traded near a six-week low versus the euro on bets the Federal Reserve will affirm its pledge to keep interest rates at a record low for an “extended period.” The pound fell as the U.K. posted a bigger-than-forecast budget deficit last month.

“The auctions are going well. That’s supporting the euro,” said Toshi Honda, a strategist at Mizuho Corporate Bank Ltd. in London. “We have the FOMC tonight and the dollar has to stay in a nervous range,”

The euro advanced to $1.3133 as of 7:20 a.m. in New York from $1.3061 yesterday. It rose to $1.3159 on Sept. 17, the strongest level since Aug. 11. The 16-nation currency bought 112.25 yen from 111.93 yesterday. The dollar was at 85.47 yen from 85.69.

Ireland sold 1.5 billion euros ($1.97 billion) in a bond auction, the National Treasury Management Agency said today. Spain sold 7 billion euros of 12-month and 18-month bills, the maximum target, the Bank of Spain said. Greece sold 390 million euros of 13-week Treasury bills at a yield of 3.98 percent, the Athens-based Public Debt Management Agency said.

Investor bets that Europe’s sovereign debt crisis is past the worst have helped the euro recover 11 percent from its 2010 low of $1.1877 on June 7. The Brussels-based European Commission said in a report Sept. 13 that gross domestic product in the 16- nation euro area may advance 1.7 percent this year instead of a previously projected 0.9 percent.

‘Good News’

“The auction results were good news for the market,” said Orlando Green, an interest-rate strategist at Credit Agricole Corporate & Investment Bank in London.

The Federal Housing Finance Agency’s monthly index for U.S. house prices fell 0.2 percent in July, after a 0.3 percent decline in June, according to a Bloomberg survey before tomorrow’s report. A Commerce Department report today will show growth in housing starts slowed to a 0.7 percent increase in August from 1.7 percent the month before, a separate survey showed.

The Fed will keep its benchmark rate at between zero and 0.25 percent at today’s meeting, where it has been since December 2008, a Bloomberg News survey showed. Fifty-four of 63 economists surveyed said the central bank will leave unchanged a sentence saying high unemployment and low inflation warrant “exceptionally low” rates.

‘Ugly Parade’

“It’s an ugly parade and the least ugly currency at the moment is the euro,” said Robert Rennie, head of currency research in Sydney at Westpac Banking Corp., Australia’s second- largest lender.

Britain’s currency declined 0.7 percent to 84.60 pence against the euro. It was 0.1 percent weaker at $1.5529.

The U.K.’s net borrowing was 15.3 billion pounds ($23.7 billion), compared with 13.5 billion pounds a year earlier, the Office for National Statistics said in London today. The median of 15 forecasts in a Bloomberg News survey was a shortfall of 12.5 billion pounds. It was the largest deficit for any August since records began in 1993.

The yuan climbed to the highest level since 1993 after President Barack Obama criticized China for not letting it strengthen. It advanced for a ninth day against the dollar, its longest winning streak since Aug. 9, before scheduled talks between Obama and Chinese Premier Wen Jiabao at this week’s United Nations General Assembly in New York.

Yuan Appreciation

China’s leaders haven’t done “everything they said would be done” to allow appreciation, Obama said yesterday at an hour-long town hall discussion in Washington.

“The yuan’s quicker appreciation is related to the political game between China and the U.S. on the currency policy,” said Isaac Meng, a Beijing-based economist at BNP Paribas. “It’s also related to the dollar’s broad weakness because the yuan is managed against a basket of currencies.”

The yuan gained 0.1 percent to 6.7061 per dollar, according to the China Foreign Exchange Trading System.

The yen advanced against the dollar as concern that Japanese officials would resume selling it eased.

The Bank of Japan doesn’t appear to be “trying to push the yen an awful lot higher, they’ve had a fair a bit of criticism already,” said Paul Bednarczyk, a strategist in London at 4Cast Ltd., a research company that counts central banks among its subscribers. “It’s very hard for the Americans to lay into China” while Japan is weakening its currency, he said.

Japan intervened in foreign exchange markets on Sept. 15 for the first time since 2004 to protect its exporters after the yen rose to a 15-year high against the dollar. While that helped the currency slump 3.3 percent on the day, it has climbed 0.3 percent since then.

To contact the reporters on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net; Candice Zachariahs in Sydney at czachariahs2@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.